How did TSMC get so good?

Jay Goldberg

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Staff
The big picture: By now, we are all familiar with the fact that TSMC is, by far, the most capable semiconductor manufacturer in the world, with all the entails for the industry and geopolitics. And as this reality sets in, many people have been asking us how did they get so good?

There are many good histories of this process, the most recent of which is Chris Miller's Chip Wars (which is very good), that cover the narrative of TSMC's rise, but we think the question really goes to deeper fundamentals. What capabilities does TSMC have that others lack? And can anyone else build those? Not surprisingly, there is no simple answer to this question, but we think there are a few factors that really stand out.

Editor's Note:
Guest author Jonathan Goldberg is the founder of D2D Advisory, a multi-functional consulting firm. Jonathan has developed growth strategies and alliances for companies in the mobile, networking, gaming, and software industries.

It is important to understand that much of TSMC's current advantage rests in intangibles. Everyone else can buy the same equipment. And their success is not the result of one genius. China's SMIC has poached hundreds of TSMC staff over the years, to no avail. Nor is the answer capital -- building an advanced fab is incredibly expensive, but many countries have sunk vast fortunes into futile attempts.

TSMC's advantage rests in years of learning and process development

TSMC's advantage rests in years of learning and process development. They know how to prepare chip designs for production, build them, and most importantly fix the inevitable bugs that appear. Most importantly, they are able to capture and retain all this learning, so they can do all of this at immense scale, repeatedly.

To be fair, TSMC has gotten an immense boost from the government of Taiwan. The government provided direct subsidies allowing TSMC to purchase the best machines available. This was incredibly important in the early days of the company, but remained important for long afterwards. As we will see, a big part of this story is the longevity and time scale of TSMC's growth.

A second important factor has been the suppression of the New Taiwan Dollar. The NTD has traded at roughly a 30% discount to the US dollar since the 1990's. Everyone knows this, but the US government has never acted on this currency manipulation, largely as an effort to support a regional ally -- check out Brad Setser's work for more on this.

Some will argue that this is not important – TSMC prices all sales in dollars, and its biggest expense, its equipment, is all denominated in US dollars as well. But that overlooks human capital. The bulk of TSMC's employees are based in Taiwan, and paid in NT, so the company is afforded a massive discount on their salaries.

All those intangibles we mentioned above are captured in the company's human capital, which the company has paid at a discount, which itself has compounded over 20 years. It is hard to overstate the importance of anything that compounds for that long.

TSMC produces more silicon wafers than anyone else, by a considerable margin.

Finally, and perhaps most importantly, TSMC produces more silicon wafers than anyone else, by a considerable margin. Practice leads to improvement and TSMC gets more practice than anyone else. It may seem counter-intuitive, but semis manufacturing is as much art as science.

Everyone else can access the same machines as TSMC, but when your manufacturing process is premised on constantly pushing the envelope of what is possible, there is no manual to explain what to do. TSMC's volumes over the decades have allowed them to build all the processes and knowledge bases needed to keep moving forward faster than anyone else. Again, this factor is self-reinforcing.

TSMC gets to advanced nodes before everyone else and thus gets better yields faster, affording them the ability to advance again, and again. This seems abstract, but consider that every new chip design is going to encounter bugs when it is first manufactured. The TSMC engineers have likely seen those bugs already and can address them quickly.

All of this provides TSMC not only with important advantages in capabilities, but also in terms of economics. There are plenty of places in the world with the ability to produce chips on leading edge processes, and give those academics enough time they can probably yield a perfect wafer, but TSMC can get there faster and in massive volume.

All of this is to say, that it is unlikely that anyone can truly catch up with TSMC anytime soon. It took them decades to build up these processes. And this helps partially explain why TSMC is now willing to build advanced fabs outside Taiwan. They know that their fabs in Arizona and Japan and Germany and wherever are going to remain dependent on the company's deep expertise back in Taiwan. The US may get a leading edge fab, but that does not mean the US can really do what TSMC does.

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How did TSMC get so good ? How did Amazon get so powerful ? How did Microsoft get so dominant ? With big money from those who have no other objective than to have total control. At that level, it's never brilliant, hard working people as they want us to believe that Bill, Steve and Elon were. Big money from dirty pockets.
 
Thanks - that's the point- when I went to London in the 80s I should have done computer programming stuff - as good money- all a blackbox to upper management - but I knew too much - that I couldn't BS experience that I didn't have - yet other more naïve people would have no such qualms - They think reading a programming guide, manual for this IBM computer would be enough - I knew that was the easy part - but in reality there was a whole lot of more knowledge you needed . I was just too honest.

This is the same as you pay "The Man" big bucks to hit something in the right spot.

There are large repository intergenerational knowledge that is not being preserved in many fields.

The workers have still got to have a passion a curiosity - some an incredible attention to detail , fine tuning , some able to think outside the box - so a mix of talents.
Kind of annoys me if high paid Medical consultants, even Doctors just chug by at the end with no desire to keep pushing - So seeing a newly minted Dr. and an Old Dr, both offer advantages - I do believe the medical profession has access to groupthink world wide networks for interesting cases .

This article infers a head start because of govt investments/breaks- but that was not uncommon- maybe then ....- Basically says got the runaway leader advantage - but maybe that book say in-depth why they did.

I'm sure it's more - good communication/partnership with say AMSL
On going training ???
On going research ???
Tie-ins with Universities ????

Plus the tactics/strategy - Intel wasted time on things that didn't pan out, yet had to gain knowledge to make gains on what they have - TMSC ride would not have been smooth - success on success etc as well
 
How did TSMC get so good ?
By offering avanced nodes at low prices and heavy reinvestment to grow the company. As competition fell behind in offering competitive nodes TSMC cemented a major advantage that started the positive feedback loop.
How did Amazon get so powerful ?
by offering a more convenient and cheaper service with fast shipping and reinvesting said cash to grow the company. As competition refused to embrace the internet and online shopping, amazon continued to grow its influence and started the positive feedback loop.
How did Microsoft get so dominant ?
By offering a convenient, easy to use GUI, in defiance of computer nerds who thought that command line was the be all end all, and reinvesting said profits into growing the company. As the competition failed to offer competitive software packages MS cemented their lead and started the positive feedback loop.
With big money from those who have no other objective than to have total control. At that level, it's never brilliant, hard working people as they want us to believe that Bill, Steve and Elon were. Big money from dirty pockets.
That's some hard tin foil coping there. All these companies got their start as small entities, and you'll notice there is a trend of heavy reinvestment. This used to be the status quo in America, and American companies DOMINATED the global stage. As greed took over and less was reinvested these companies gradually got displaced by foreign alternatives. the same thing happened to the automotive industry and the manufacturing industry, and the transistor node industry (america was the leader in the 80s and 90s). The same thing is starting to happen to the likes of amazon and microsoft.

This is nothing new. Companies like sears/montgomery ward/JCPenny were once dominant in the retail space and did in many a small company and provider before themselves being consumed. Microsoft displaced companies like commodore and atari. TSMC put down IBM and GlobalFoundry, who themselves nuked the likes of Fairchild.
 
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by offering a more convenient and cheaper service with fast shipping and reinvesting said cash to grow the company. As competition refused to embrace the internet and online shopping, amazon continued to grow its influence and started the positive feedback loop.
Of course Amazon just had a better model than all companies in the world, nobody studied it and tried to copy it. Just by being different and clever, Amazon was cheaper, faster, had a better service to their customers. Their competition was too greedy to adapt and preferred to die rather than lower their margins. Of course, Amazon with the lower margins they had, became richer much faster and that's the explanation why we have this financial monster today (sarcasm). This is a quite an innocent point of view.
The success stories that you hear on TV are just propaganda to build worshipers of a capitalism where we can't compete. When you put unlimited funds (like Blackrock or Vanguard do) in a company, nobody on earth can compete. Then they get their investments back once the said company is ruling.
 
Of course Amazon just had a better model than all companies in the world, nobody studied it and tried to copy it. Just by being different and clever, Amazon was cheaper, faster, had a better service to their customers. Their competition was too greedy to adapt and preferred to die rather than lower their margins. Of course, Amazon with the lower margins they had, became richer much faster and that's the explanation why we have this financial monster today (sarcasm). This is a quite an innocent point of view.
The success stories that you hear on TV are just propaganda to build worshipers of a capitalism where we can't compete. When you put unlimited funds (like Blackrock or Vanguard do) in a company, nobody on earth can compete. Then they get their investments back once the said company is ruling.
There are plenty of videos and article detailing how utterly incompetent the leadership of companies like sears were, refusing to address this whole internet *fad* and drove their companies into the ground.

Apparently techspot auto-jannies for some odd reason, but I'll say it again: there is no grand conspiracy. Suggesting there is some concentrated effort to make amazon a monopoly is up there with 5g vaccines made to sterilize the planets population tier tin foil hat schitzo-theory.
 
I don't get what's with the negative tones in the comments here, if it is so easy, why not build yourself a TSMC, Amazon, or Microsoft? Give me a break.
 
1990 was a giant bubble in Taiwan though, it took 30 years, up until recently, to recover to that level, and now with the US printing so much money, I think the exchange rate is fair TBH.
 
There are plenty of videos and article detailing how utterly incompetent the leadership of companies like sears were, refusing to address this whole internet *fad* and drove their companies into the ground.

Apparently techspot auto-jannies for some odd reason, but I'll say it again: there is no grand conspiracy. Suggesting there is some concentrated effort to make amazon a monopoly is up there with 5g vaccines made to sterilize the planets population tier tin foil hat schitzo-theory.
There's no grand conspiracy, true, but conspiracies exist all the time and you can only catch a glimpse of them when they flop big time. I do believe forces of capitalism drive things to a certain point, but then, things get shady, because it's just too much money, which means too much influence, which always leads to monopolies and monopolies are only collapsing from the inside, because otherwise they'll buy all competition. The famous build a success story from a garage is garbage. No matter how good your ideas are, you need capital, you need connections and a little bit of luck. And then yeah, Bill Gates was smarter than some other rich guy, Musk, Bezos were brighter than some other rich guys and so on.
 
I don't get what's with the negative tones in the comments here, if it is so easy, why not build yourself a TSMC, Amazon, or Microsoft? Give me a break.

Sure, just find a way to raise a few hundred Billion dollars.

I can't help but give a sad chuckle whenever the US throws a hundred million or so at local industries to try and be competitive, when the competition is throwing billions and billions every year for decades.
 
I didn't even read the article, skipped straight to the comments and they're all I thought they would be!

Keep em coming folks, it's a slow day at work.
 
I don't get what's with the negative tones in the comments here, if it is so easy, why not build yourself a TSMC, Amazon, or Microsoft? Give me a break.

There's the issue of market maturity: when it all started everyone was around the same starting point (oblivious) and then the race started. At this point in time, "to compete with TSMC" you need "something new" to bring to the table: it might be cheaper prices, because some improvement on the production lines (more automation, perhaps, it's really hard to compete with wages there) or with a "new" process. Basically it's a mature market and newcomers need "new" ideas to make a dent, not only "start a new business there". The other solution is just hard work (the Chinese approach): with enough time and money you would be able to "catch up" to the leader and eventually surpass it, but it requires a lot of time and money (and probably a lot of government's subventions).

Microsoft and Amazon are examples of small companies that betted for the "right" future and were smart enough to create positive feedback loops. That's why there was such a rush to get into blockchain some years ago: you could have started the next Microsoft or Amazon...
 
There's no grand conspiracy, true, but conspiracies exist all the time and you can only catch a glimpse of them when they flop big time. I do believe forces of capitalism drive things to a certain point, but then, things get shady, because it's just too much money, which means too much influence, which always leads to monopolies and monopolies are only collapsing from the inside, because otherwise they'll buy all competition. The famous build a success story from a garage is garbage. No matter how good your ideas are, you need capital, you need connections and a little bit of luck. And then yeah, Bill Gates was smarter than some other rich guy, Musk, Bezos were brighter than some other rich guys and so on.
It's more the ability to raise money, via investors. That's why there is so much hesitancy to both raising interest rates and doing anything to hurt the stock markets. Because yes, to make a new car company takes hundreds of billions, if not TRILLIONS in investments over a period of time, with no guarantee of ever seeing a return on that investment.

And then, when the Federal government recognizes there's a new industry or a major industrial weakness and decides to spend some money to shore it up, you know what we do? Attack them for it, because some companies will naturally fail. We ignore the cases where that investment leads to successful companies that, more often then not, become market leaders.
 
How did TSMC get so good ? How did Amazon get so powerful ? How did Microsoft get so dominant ? With big money from those who have no other objective than to have total control. At that level, it's never brilliant, hard working people as they want us to believe that Bill, Steve and Elon were. Big money from dirty pockets.
The article mentions the word “human capital” once and doesn’t mention it again. TSMC recognized early on that it’s people are the real “Capital” and the machines they buy from ASML are their “labor” which they can retire when they become obsolete. Intergenerational learning by human capital NEVER gets obsolete. The so-called “Capitalists” of the western world, ALL OF THEM, have wasted and used up their human capital, and are now heading downhill. But wait, there is a new economy emerging called the “Platinum Economy” that is recognizing the value of Human Capital, and has the potential to transform America if Wall Street does not kill it even before it has the chance to succeed. There is a book available on Amazon written by three guys from McKinsey - a quick read that provides an excellent overview and is worth reading for every technology professional.
 
Sure, just find a way to raise a few hundred Billion dollars.

I can't help but give a sad chuckle whenever the US throws a hundred million or so at local industries to try and be competitive, when the competition is throwing billions and billions every year for decades.
The competition isn’t just “throwing billions”. They are starting with a few millions, INVESTING IN THEIR HUMAN CAPITAL, starting with small wins, REINVESTING THEIR PROFITS, and continuing to invest and grow their human capital over the long haul. When will US Compnies learn and start doing the same thing? It’s called Human Capitalism by the way. I hereby coin the phrase and give it away for free.
 
By offering a convenient, easy to use GUI, in defiance of computer nerds who thought that command line was the be all end all, and reinvesting said profits into growing the company. As the competition failed to offer competitive software packages MS cemented their lead and started the positive feedback loop.

Regarding Microsoft....... how did little Bill Gates get to produce MS-DOS, which made him his first big fortune? Why would a giant like IBM give such a profitable business to some anonymous like young Bill Gates?

1. Because he scored 220 on the IQ test.

2. Because his programming skills were out of this world.

3. Because he knew IBM PC hardware inside out.

4. Because his mother was a member of IBM's board of directors, his father was a rich lawyer and his grandpa was a banker.


I know.... it's a hard question. Any of the above could be the answer. So, take your time. There's no time limit for this answer.
 
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I guess one of the factors which is missing in this article is compound complexity of the know-how required by modern fabs... For example take chemistry - TSMC has a know-how of how to purify materials to the insane levels required for the reliable manufacturing of nm scale silicon. If intel or other competitor doesn't know how to get the same materials at the same purity level at the right costs than they have to invent it... and inventing and experimentation takes time. So to get the new fab going you need to invent thousands of connected building blocks of the process and unless you have all of those small know-hows you simply cannot compete with TSMC...
 
Instead of asking why did TSMC became so good, maybe we should consider why did the rest of the big fabs become so bad. Intel for example was a cutting edge fab that had a significant lead over their competitors, yet they sat on their success and eventually allowing their competitor to catch up. Even now, they are barely keeping up with TSMC because they lost many years of lead.
 
Also of course the article author could never say this as he'd be immediately canceled and never write again, but using THE very best people rather than having to hire a woke quota hodgepodge (as Western companies must, by law and otherwise) at cutting edge engineering levels is probably a fairly important factor. It is one reason I consistently stress that China is likely the economic future. Not having to worry about frivolous EEOC lawsuits is another (much smaller) help.

This kind of reminds me of why it would be almost impossible for any companies to catch Intel, Nvidia (particularly), and AMD. They have literally THOUSANDS, tens of thousands, maybe hundreds of thousands of man years of knowledge to build on that is incredibly difficult, nearly impossible, to build from scratch. Then add to this a absolute fortress of patents and lawyers. One incredibly interesting thing I saw once, is that as a pvt citizen (say, trying to patent an invention), the good patent lawyers are incredibly expensive. But the very BEST patent lawyers? A pvt citizen cannot hire them for any price, they are on retainer at giant wealthy far left corporations.

This was really proved out recently with Intel, already obviously a huge extremely experienced chip company with incalculable advantages to begin with, trying to get into the GPU game. It obviously fell fairly flat even after enormous expense and years of waiting. What hope anyone else?
 
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